Question

What is the present value of the following cash-flow stream if the interest rate is 5%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Year Cash Flow
1 $190
2 390
3 290

Answer 1

Answer:

present value  = $785.21

Explanation:

given data

interest rate r = 5%

Year 1 Cash Flow  C1 = $190

Year 2 Cash Flow  C2 = $390

Year 3 Cash Flow  C3 = $290

time t = 3 year

solution

we get here present value of cash-flow stream that is express as

present value = $\frac{C1}{(1+r)} + \frac{C2}{(1+r)^2} + \frac{C3}{(1+r)^3}$    ......................1

put here value and we get

present value  = $\frac{190}{(1+0.05)} + \frac{390}{(1+0.05)^2} + \frac{290}{(1+0.05)^3}$

present value  = $785.21